In an effort to augment its securities services business, U.S. Bancorp’s (USB) subsidiary - U.S. Bancorp Fund Services, LLC – is acquiring AIS Fund Administration (“AIS”), which offers fund administration and related services to alternative investment managers.
The deal leads to the addition of about $25 billion in hedge fund assets under administration to the U.S. Bancorp subsidiary. Along with AIS’s assets, its staff consisting of 176 members at its offices in New Jersey, the United Kingdom and the Cayman Islands, will also be integrated into U.S. Bancorp Fund Services.
Following this deal, $50 billion in alternative investment assets would be serviced by this U.S. Bancorp unit. However, the terms of the deal were not made public and the transaction is subject to regulatory approval.
We are encouraged with this deal as it would help the company augment its fund servicing capacities and assist it to increase focus on corporate trust services.
As a matter of fact, U.S. Bancorp has a well-balanced business model, with non-interest revenue representing nearly half of its total revenue. Its results have been driven by a combination of acquisitions and organic growth.
In addition to strengthening its existing fee-based operations to generate long-term revenue growth, U.S. Bancorp announced several payment and trust-related acquisitions during the past year. This included a portfolio of approximately $700 million of credit card assets, the institutional trust business of Union Bank, a unit of UnionBanCal Corporation of San Francisco. Notably, UnionBanCal is a subsidiary of Mitsubishi UFJ Financial Group Inc. (MTU).
Further, it comprises the Indiana corporate trust business of UMB Bank N.A. , a unit of UMB Financial Corp. (UMBF). Going forward, the company expects additional opportunities in payments and corporate trust in the coming years.
In total, during the downturn, the company acquired over $3.2 billion in card assets and $1.1 trillion in trust assets under administration. This diversification in business is expected to continue to help maintain growth in an otherwise unfavorable operating environment.
U.S. Bancorp currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.
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